IASB looks to align IFRS for SMEs with full standards

The International Accounting Standards Board (IASB) has begun consulting on proposals to update the IFRS for SMEs standard, which include consideration of whether and how to align the simplified accounting standard for small and medium-sized entities with full IFRS standards

This is the first step in IASB’s second comprehensive review of the IFRS for SMEs standard, which is required or permitted in more than 80 countries and is used by millions of companies.

IASB has developed a framework outlining how the IFRS for SMEs standard could be amended to take account of IFRS standards and amendments to those standards, but has not reached a definitive conclusion.

The request for information seeks view on this framework since it defines the scope and structure of the comprehensive review and determines the approach to possible amendments.

This include asking for input on different approaches to updating the IFRS for SMEs standard, as well as views on how it could be aligned with newer IFRS standards, such as IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases.

The board is asking for views on whether or how IFRS for SMEs should be aligned with future standards.

As well as this, it is also seeking feedback on aligning the standard with two amendments to IFRS standards (Definition of Material and Definition of a Business) with effective dates of 1 January 2020.

IASB says it believes these amendments provide clarification and therefore would ease application of the IFRS for SMEs standard.

In general, IASB notes that those who support the alignment approach do so because they consider it to be efficient, since it allows the board to apply the considerable insight gained while developing full IFRS standards; consistent with constituents’ expectations that full IFRS standards and the IFRS for SMEs standard reflect the same principles; and necessary for an entity seeking consistency with its larger peers.

There is also the argument that alignment is conducive to an entity potentially migrating, in time, to full IFRS standards, and that it is sufficiently flexible to allow the specific requirements and characteristics of SMEs to be considered.

IASB says those who do not support the alignment approach believe the IFRS for SMEs standard should be developed and amended considering only the explicit and specific requirements of SMEs, and should not be guided by developments in full IFRS standards.

Responses to this request for information will be used to help the IFRS for SMEs implementation group (SMEIG) develop recommendations for the board on whether and how to amend the IFRS for SMEs standard. Any proposed changes will be subject to further consultation.

The SMEs implementation group is responsible for developing Q&As to provide non-mandatory and timely guidance on accounting questions about applying the IFRS for SMEs standard.

During its current review, IASB will consider the Q&As developed since the issue of the 2015 amendments to the IFRS for SMEs standard and determine whether to incorporate the responses in the updated standard.

The implementation group’s most recent Q&A considered the application of the undue cost or effort exemption when measuring fair value on transition to the IFRS for SMEs standard.

Its response was that when preparing its first financial statements applying the IFRS for SMEs standard, an entity assesses whether the fair value of an asset can be measured reliably at the entity’s date of transition without undue cost or effort using information about the costs and benefits at the date of transition.

The entity does not consider the additional cost or effort due to the elapse of time between the date of transition and the date of its first financial statements prepared applying the standard when determining whether fair value can be measured reliably.

IASB points out that its comprehensive review of the IFRS for SMEs standard will not necessarily lead to amendments.

When it was issued, the IFRS for SMEs standard reflected simplifications of requirements from full IFRS standards for recognising and measuring assets, liabilities, income and expenses and substantially reduced the amount of information required to be disclosed.

The board does not intend that all IFRs standards, amendments to IFRS standards and International Financial Reporting Interpretations Committee (IFRIC) interpretations issued since the IFRS for SMEs standard was issued should give rise to amendments to the IFRS for SMEs standard.

Rather, IASB’s intention is that any amendments to the IFRS for SMEs standard will be consistent with the approach to simplifications and disclosure reductions adopted when it was originally issued.

The deadline for responses to the request for information, originally set as 27 July, has now been extended to 27 October because of the Covid-19 pandemic.

Comprehensive Review of the IFRS for SMEs Standard

Section 35 Transition to the IFRS for SMEs guidance

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